Sell crypto platform Coinbase before its earnings report, Barclays says

Published Thu, Jul 13 20236:28 AM EDTUpdated Thu, Jul 13 202311:41 AM EDT

Investors should dump Coinbase ahead of its earnings report, Barclays warned. Analyst Benjamin Budish downgraded the crypto platform to underweight from equal weight while raising his price target by $9 to $70. Despite the increase, his new target implies the stock could drop 18.6% in the next year from Wednesday's close. Shares slipped 1.3% before the bell Thursday. The stock has surged more than 140% in 2023, staging a comeback from 2022's nosedive as investors have closely watched crypto stocks. But Budish isn't so sure that rally can keep its steam. His argument: There's justification for the stock trading at a higher price-to-earnings multiple, but the current rally is, in his words, overdone. COIN YTD mountain Coinbase, year to date There are "some rays of sunshine, but we're still in winter," he said in a note to clients Thursday. "While we continue to believe Coinbase is a likely longer-term winner in the broader crypto ecosystem, fundamentals remain challenged, and recent relief from price actions, increasing rates, and cost rationalization likely have little further to run." Exchange volumes in the second quarter are on pace to fall more than 30% from the first quarter despite a strong June compared with May and July to date. Regulatory overhang continues to weigh on the sector as competition increases, he added. Notably, Budish addressed BlackRock 's Bitcoin ETF , which is expected to use Coinbase as a custodian and prime broker, saying Coinbase's share appreciation following the announcement doesn't fully reflect the potential effects to profit and losses that may not be fully seen for some time. Budish's volume and revenue estimates are below the consensus estimate of Wall Street, while the forecast for interest income is higher than expected more broadly. When looking ahead to future performance, he said Barclays has lowered expectations for trading revenues, but noted that can be offset by the higher interest income as the rate futures curve moves higher. Budish said the company still may have some room for shares to rise, but there are few reasons to expect near-term upside without increases in interest rates, platform activity or the USD Coin's market cap. Coinbase is expected to report second-quarter earnings next month, per FactSet. Barclays isn't the only firm getting bearish on Coinbase. On Wednesday, Atlantic Equities downgraded the stock to neutral, noting, "While the tenets of our recent upgrade remain in place, the risk/reward looks less attractive at this level given continued regulatory challenges ahead and the surprisingly weak volume backdrop." — CNBC's Michael Bloom contributed to this report.